Characteristics of dividend investments
Not much has changed in this regard in recent decades – despite the spectacular price increases by many technology equities that offer high growth, but usually low dividends. What’s more, the low-dividend growth champions of today may even become the dividend kings of tomorrow in some cases.
Equities not only offer earnings opportunities on the basis of their performance, but can also distribute a portion of the company’s profits – the dividend – to the shareholders. In the low-interest environment of the 2010s, this was especially attractive because dividend yields were often significantly higher than the interest income offered by bonds.
Naturally, equity dividends and bond coupons are not the same, and equities also cannot be directly compared with bonds: Equities are subject to higher risk, but in turn also offer higher earnings opportunities. Dividends can be reduced, eliminated entirely, or increased at any time, which is not the case for bond coupons. And while the price at which a bond will be redeemed upon maturity is fixed (provided that the issuer does not go bankrupt), the price at which a equity bought in the past will later be able to be sold is entirely uncertain.
Dividends offer many advantages
High dividend equities are an attractive and interesting investment alternative for investors who are looking for higher returns than those offered by bonds and are prepared to accept the associated higher risks (price volatility, possible capital losses), because:
Due to the compound interest effect, reinvested dividends offer the opportunity to earn significant additional returns compared with equities that do not pay dividends.
In addition, high dividend equities exhibit less volatility than the equities of companies that do not pay dividends.
Furthermore, the dividend disbursements serve as a kind of buffer in weak market phases.
However, anyone who believes that it is desirable to have the highest possible dividend yield is mistaken. It primarily depends on whether a company generates this dividend over the long term and can continue increasing it while also leaving enough capital in the company to secure growth and market position.
Cheating inflation
The increase in bond yields in recent years has made them much more competitive with dividend yields again, but dividend equities still have an advantage when it comes to inflation: In contrast to fixed-income bonds, equities can offer a kind of inflation protection with their dividends. And while it is not perfect, it is often astoundingly good.
However, this requires good equity-picking, and especially a focus on high quality, solid companies with a strong market position and good business models. These companies can pass on any general price and cost increases to their customers, allowing profits and dividends to essentially grow along with inflation. In recent years, corporate earnings even increased to a higher degree than the general price level in many cases.
One textbook example of this is the highly successful investor Warren Buffet with his long-standing investment in Coca-Cola equities. He now receives almost 60% of the original (1988) equity purchase price as a dividend – every year, mind you! And what’s more, the investment itself has multiplied in the intervening years. But as noted above, the right selection of equities is key. And this is where Raiffeisen-GlobalDividend-ESG-Aktien comes into play, as it does many things a bit differently than its competitors and is geared towards investors who not only want to invest in companies that can be expected to deliver high dividends, but also want to support responsible business practices.
What makes Raiffeisen-GlobalDividend-ESG-Aktien unique?
The investment focus of the fund is on high dividend companies with medium to high market capitalisations (so-called mid and large caps), primarily from industrialised countries. However, investments in equities from the
However, far fewer funds with a focus on dividends invest sustainably according to ESG criteria. This is often for very practical reasons, because some of the highest dividend yields are paid out in sectors or by companies that do not meet or barely meet ESG criteria, such as tobacco companies and many companies from the coal, oil, and gas segments. In this context, it is also important to keep in mind that these high dividends are also associated with increased regulatory, legal, and business policy risks.
The investment strategy of Raiffeisen-GlobalDividend-ESG-Aktien also focuses on certain sustainability themes such as responsible financing, diversity, the circular economy, and fair and transparent tax policy. The goal when it comes to equity-picking is for the Raiffeisen ESG indicator of the fund portfolio to be significantly higher than the overall market. The minimum score for the individual securities in the portfolio is 50.
Dividend growth – an often underestimated source of returns
Another unique characteristic is the fact that Raiffeisen-GlobalDividend-ESG-Aktien currently invests up to a fourth of its portfolio in equities that have a very low dividend yield at the moment, but which the fund management believes are at the start of a long growth process with regard to their dividend disbursements. This includes equities such as Taiwan Semiconductor, ASML, Eli Lilly, and Novo Nordisk, but also a few companies that belong to the “magic seven”, which are drawing attention from investors and the media due to their spectacular revenue growth, such as Nvidia and Microsoft. Many of these companies have only distributed a small fraction of their profits and cash flows in the form of dividends up to now. This proportion will very likely grow – and for a long time (see the Coca-Cola example). There is no guarantee for this, but the fund management believes that the likelihood is high.
And there is one more thing that makes Raiffeisen-GlobalDividend-ESG-Aktien different than many other dividend funds: It invests very actively and is not afraid to strike when promising opportunities arise.
Current positioning and market conditions
For example, Raiffeisen-GlobalDividend-ESG-Aktien currently has a relatively strong position in Japanese equities. Why? The country has a dividend culture that goes back a very long time and a high number of companies with very strong and long-established international market positions. Although the renewed weakness of the Japanese yen has cost a bit of performance in recent weeks, the fund management is still optimistic when it comes to Japan’s equity market. In addition, the Japanese currency is now highly undervalued from a fundamental perspective and may be on the verge of a longer recovery after a downtrend in the exchange rate that has lasted years.
At the same time, some past equity market studies have shown that the current environment of (excessively) high, but falling inflation was generally good for dividend-oriented investors. Naturally, this is not a guarantee that this is also the case now. At any rate, however, it is something that provides additional confidence, along with the fact that the performance of Raiffeisen-GlobalDividend-ESG-Aktien reached a new all-time high a few days ago.
What you should pay particular attention to
Although high dividend companies generally have more stable operating figures, they too are subject to the risks that are typical of equity markets such as value fluctuations and loss of capital.
Naturally, dividend equity are also subject to the value fluctuations on the capital markets and can result in not only capital gains, but also capital losses.
Raiffeisen-GlobalDividend-ESG-Aktien exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.
Raiffeisen-GlobalDividend-ESG-Aktien exhibits elevated volatility, meaning that unit prices can move significantly higher or lower in short periods of time, and it is not possible to rule out loss of capital.